Dhaka, Bangladesh (BBN)– The interest rate on Bangladesh Government Treasury Bond (BGTB) dropped significantly on Tuesday as commercial banks rushed to offer their bids in auction, treasury officials said.
The yield, generally known as coupon interest rate, of the two-year BGTB came down to 6.44 per cent on the day from 7.20 per cent of the previous auction, held on August 4 last.
The government borrowed BDT 3.0 billion from the scheduled banks through issuing its treasury bond on the day to finance budget deficit partly.
Talking to BBN, a senior official of the Bangladesh Bank (BB) said the yield of the BGTB has been fixed in line with the market demand.
“The banks are now interested to invest their excess liquidity in the risk-free government security to minimise their cost of fund,” the central banker explained.
More than 20 commercial banks are still facing excess liquidity burden mainly due to lower credit demand recently, according to a senior treasury official of a leading private commercial bank.
The private banker also said most of banks prefer to invest their excess funds in the bond because of lower interest rates on call money in the inter-bank market.
The call rate ranged between 5.30 per cent and 6.50 per cent on Tuesday against 5.25 per cent and 6.50 per cent of the previous working day. However, most of the deals were settled at rates varying between 5.50 per cent and 6.0 per cent, according to market operators said.
The central bank is now mopping up excess fund from the market using its reverse REPO (repurchase agreement) auction tool to keep the money market stable, another central banker said.
The BB withdrew BDT 160.64 billion at 5.25 per cent from the market through reserve REPO auction on Tuesday. It was BDT 162.68 billion on Monday.
Five government bonds with duration of two, five, 10, 15 and 20 years respectively – are being traded in the market.